Sunday, December 09, 2012

How to Head Off a Debt Ceiling Crisis in 2013


Congressional Republicans, who lack bargaining power in the fiscal cliff debate, have recently suggested that they will try to achieve their preferred tax and spending policies by threatening not to raise the debt ceiling unless the Democrats capitulate. The nation is currently on course to reach the current debt ceiling of 16.4 trillion dollars in February or March of 2013.  You may recall that the Republicans tried this tactic once before in the summer of 2011.

President Obama has said he will not play this game again. He is right to do so.

Many Democrats have argued that it is time for Obama to state that he will invoke section 4 of the 14th amendment and threaten to raise the debt ceiling unilaterally (or ignore it) and instruct the Treasury to issue new debt.  But Article I, section 8 gives Congress, not the president, the power to issue debt on the credit of the United States. The president lacks the power to do so on his own--except, perhaps, in the most extreme emergencies, when it would have to be followed quickly by a post-hoc ratification of his actions by Congress. He could not do so in the absence of such an emergency.

Still others have begun discussing alternatives like trillion dollar platinum coins and the sale of exploding options, which I discussed during the 2011 debt ceiling crisis. These two ideas are quite interesting theoretically, but they are practically irrelevant.

In fact, as I explain in a recent piece in the Atlantic, the proper course for the president is simple. He should make clear that his first obligation under section 4 of the 14th amendment is to make sure that the validity of the public debt is not put into question. That means continuing to pay bondholders (and holders of other similar federal obligations already undertaken) even after the debt ceiling is reached. This will inevitably lead to a partial government shutdown, with more and more government functions shut down as time goes on. Such a shutdown will lead to a replay of the events in the winter of 1995 during the Clinton Administration. The Republican leadership in Congress will properly get the blame for putting the country in this situation.

If the president makes his position on the debt ceiling clear in advance, the Republicans will realize that if they are intransigent all they will succeed in doing is shutting down the government-- which will be wildly unpopular. Knowing this, they will also recognize that they cannot use the debt ceiling as a regular instrument of politics.  Of course, preventing this sort of tactic is the original purpose of section 4 of the Fourteenth Amendment.

The president's independent constitutional duty to continue to pay the debts of the United States-- including, in particular, interest on government bonds-- is the feature of section 4 that strengthens the president's hand, and *not* the idea that he could unilaterally raise the debt ceiling.  This aspect of the amendment is what most of the debate about section 4 misses. Section 4 does not give the president the power to raise the debt ceiling. But it does give him the constitutional authority to prioritize the payment of the federal debt over other government functions. That is the real source of his power.

In fact, if the president ignored the debt ceiling and issued his own bonds, or if he publicly announced that he would mint trillion dollar coins or sell an exploding option to the Federal Reserve, he might lose the high ground in the standoff and actually be politically weakened. First, Republicans would feel no obligation to raise the debt ceiling because Obama would have taken all the pressure off them, and government functions would continue normally. Second, any of these strategies would give Republicans the opportunity to go on the attack. They would insist that Obama was acting illegally, go to court to stop him, and possibly even try to impeach him.

On the other hand, announcing his position in advance, steadfastly refusing to negotiate with hostage takers and assuring the investment community that all interest on federal obligations will continue to be paid regularly and on time puts Obama in a superior position both legally and politically.

Because I was involved in the debates about the debt ceiling crisis in 2011, I've been interviewed a couple of times about the debt ceiling recently. The first thing reporters always want to talk about is platinum coins. That's fun to think about--it's a sort of financial science fiction--and the counter-intuitive nature of the idea probably attracts readership. But it is completely beside the point. It's not going to happen.

Similarly, reporters--and more than a few Democrats--are interested in whether the president can invoke section 4 of the Fourteenth Amendment and raise the debt ceiling himself. Again, this constitutional question is quite interesting as an academic matter, but it's not how a debt ceiling standoff will actually end.  (And Obama's press secretary, Jay Carney, has recently repeated the president's view that he lacks the power unilaterally to raise the debt ceiling or otherwise ignore it).

Rather, the smart move for Obama is to refuse to negotiate with hostage takers and to insist that he will continue to pay the debts of the United States. This is the correct constitutional course of action, and it also puts him in the strongest position politically as well.